oicur12

hey all,

I have just started a 6 month contract overseas and assume there is no way around paying fed/state tax. I am working in a country that does not have a tax treaty with the US.

Are there any tricks to minimizing income tax while working this job? Its not a huge salary and will only be 6 months work for the whole year. Is it common for guys to get paid in a cayman account and not declare or is that scam reserved for the fat cats only?

Any heads up would be appreciated.

The Dominican

Here is a heads up..., Don't try to outsmart the IRS!

I've always found that sites like this one are fairly good to get information about flying the line or training at a particular outfit, for such an important issue like taxes, this is NOT the place to come for information...., the office of a tax attorney that specializes in foreign income matters is where you should get that answer

mike734

I don't believe a tax treaty is necessary to qualify for the physical presence test or the bonifide resident test, one of which you must pass to qualify for the foreign income exclusion. I've had three overseas contract jobs and two of the three were extended well beyond the initial term. If you think your contract might be extended then I expect you will pass the physical presences test. You will need to be out of the USA for 330 days in the last 365. (The rules may have changed since I did it) there are plenty of competent tax attorneys available. An hour with one would be worth your while.

OceanicPilot

I totally agree with what's been said. I've worked overseas for six years now and one of the first things I did was to hire a CPA with lots of experience in foreign income. He probably saves me more money than I spend on him.

FlyingNasaForm

No, the IRS views this as a temporary assignment. You have to pay taxes

There are 2 ways to qualify for the $99,200 Foreign Earned Income Exclusion (FEIE).

1. Be out of the country for 330/365 days
2. Be a bonafide resident of a foreign country for one year.

Source: IRS Pub 54, bottom of page 13

Don't trust us though. I've used a couple different firms to do my expat taxes and I prefer Taxes For Expats for my returns. Talk to them. If you end up using them please send me PM so I can give you my name and get credit for the referral.

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Now, there may be a way to legally change that "No" into a "Yes". I am still learning about this and have yet to do it. This is also an oversimplification of the setup. You'll need to consult a firm that deals with this sort of thing, which I can refer you to. But, if done right, and you meet all the conditions, it is completely legal.

1) Open an off shore company in a place like Belize, we'll call it oicur12 Aviation
2) Your employer pays oicur12 Aviation for pilot services

Now you oicur12 (the person) will not be taxed on that income until the Belize company pays you. So you keep the money offshore and invest it. If you ever become an expat again and do qualify for the FEIE the Belize Company could then pay you (the person) some or all of your money up to the maximum exclusion under the FEIE + foreign housing credit + any foreign tax credit.

Typhoonpilot

As above, check with a competent tax consultant. That said, in my experience there are very few "competent" tax consultants. There are a lot of idiots in the field so you could easily get bad advice. I've had tax attorneys cost me thousands because they were way too conservative.

You might want to look at just taking the daily per diem deduction for the city you are in. If it is a city with a high daily per diem rate then that might help reduce your tax burden significantly.

Also, you could theoretically stay out of the country for 330 of 365 days even though only working this contract for 6 months. That would qualify you for the full foreign earned income exclusion.


TP

badflaps

Cayman is yesterday, you might as well be talking to the Bank of NY. Info trades between them like poop through a goose. However, Panama or Belize, are different animals. The Channel Islands are fun too. Write from "camp."

DjHubberts

A Chinese bank account is just about the best thing out there as they report nothing to the US Banking system. The only problem there is good luck getting your money back out.

In all honesty though, the other thing to keep in mind, and I am sure that some of the long haul guys can help with this, is any money earned while flying over international waters is NOT covered by the foreign tax exemption. How they figure that out, good luck. I'd hate to be in that meeting.

f10a

I believe the thieves in the IRS attempted to go after several Emirates pilots on the international water nonsense, and were unsuccessful.

unitedflyier

That whole international water things was such nonsense. I hope the Emirate pilots won. I heard the worst case was a hostage on a ship held by Somali pirates. The IRS said he couldn't prove where he was so they would assume international waters and he owed them for 3 YEARS. Yes thats right and as he didn't file for those 3 yes he was going to get fined etc. Unbelievable.

The US is only 1 of 2 countries that double taxes. Not sure of the other one. The only sure way is to do what an increasing number of Americans are doing and that is dumping their citizenship. Shame you have to even think about doing that.

For 6 months I would play safe and by the rules so you don't have to worry about a letter or knock on the door.

Good luck.